Food price inflation predicted to fall dramatically over next two years

Food price inflation will fall sharply in the next two years, according to a new economic forecasting model developed by English Farming & Food Partnerships.

But while the forces that have pushed food prices higher will reduce dramatically, real-time food prices were unlikely to lose ground, EFFP chief executive Sion Roberts told the organisation’s annual conference in London this week. “We hear that food prices are falling, but in fact it is food price inflation that is coming down.”

Despite the growing threat of a long and “painful” economic recession pressuring consumer demand, Mr Roberts reckoned market fundamentals – like a growing world population – meant farmers could expect prices for raw material, including food, would remain at comparatively higher levels than recent years.

He said that food prices had reached a new plateau, established last year, where they would remain for some time, although the inflationary pressure behind them would drop sharply away.

“Food inflation has peaked in the UK and it will decrease sharply from 12% to below 3% in the middle of 2009,” Mr Roberts said.

Mr Roberts said food price inflation had risen sharply since June 2006, exceeding an equivalent rate of 12% a year in the last few months, compared with an average increase of 1% a year in the last 10 years. “Food price inflation is going to fall very fast, but higher and more volatile food prices are here to stay and managing risk within the food chain is going to remain a key priority,” he told conference delegates.

EFFP has developed its food price inflation forecast with Cranfield School of Management and partners in the food industry. It was based in part on the underlying rate of growth and inflation in the economy, the performance of oil prices and agricultural commodities, and movements in currency exchange rates.

“Even with slower global economic growth in the next couple of years, the trend towards increased demand for food is not likely to be reversed. Economic development will continue to spread the food consumption patterns of the rich nations to a large proportion of the world’s population in emerging economies.”

Coupled with steadily increasing demand for raw food materials, there was compelling evidence that global production could remain tight. “Falling agricultural productivity is the key concern, the more so as non-food used for grains, such as for biofuels, are likely to increasingly compete for grains in the future. It is these factors that have caused global demand for grains to exceed supply in seven of the last eight years.”

Such a background meant food companies would have devote more attention to securing supply chains and consider suppliers on a more equal footing with their customers, he said.

The food inflation forecast would be updated quarterly in a new bulletin from EFFP, Mr Roberts added.

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